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Does a country’s geographical latitude impact its economy?

If we drew a map of all the richest economies, one can note that almost all wealthy countries lie in non-tropical zones (with the great exception of Hong Kong and Singapore). This article shows a correlation between a country’s economic development and its geographical latitude. Countries located further from the Equator tend to have a better economy than countries located around it.

The analysis is done based on the climate zones shown on Figure 1. The tropical zone is defined as the zone between the tropic of Capricorn and the tropic of Cancer (zone between 24° N and 24° S). The zones located both between 24° N and 40° N, and 24° S and 40 °S shape the subtropics and the zones located at a latitude of more than 40° (both North and South) compose the temperate zone. These three zones share roughly one third of the earth’s surface each (tropical zone = 35% of world’s surface, subtropical zone = 33% of world’s surface and temperate zone = 32% of world’s surface). Subsequently for each country the GDP, GDP Per Capita (GDP PC), population, surface and geographical latitude has been extracted from the World Data Bank. Based on its latitude, a climate zone has been assigned to each country. Only countries with a population over 1 million have been analyzed. The data used is from 2018.

Finally, the GDP Per Capita (GDP PC) for every country has been plotted in function of its geographical latitude in order to obtain the graph shown on Figure 2. For simple reason of clarity, not every graphical point has been labelled with the name of the country it represents.

As already mentioned, the worlds surface is almost equally shared between the different climate zones. However, 48% of world’s population is located within the tropical zone, but less than 15% of the world’s GDP is generated by it. In fact, almost 60% of the world’s GDP is generated within the subtropics.

In Figure 2., as one can see, except for Singapore (64 580 $ GDP PC) and Hong Kong (48 675 $ GDP PC), there is no country having a GDP of 20 000 $ per capita in the tropical zone. On the third place we find Oman with a GDP PC of 16415 $ per capita. In a deeper analysis, we note that there is a big difference in the tropics between countries having access to maritime transport and the ones who are surrounded by land. Those that are both tropical and have no access to the sea, are amongst the poorer economies in the world, such as Central African Republic, Zimbabwe, Bolivia, Niger, democratic republic of Congo, Zambia etc.

The first countries having a remarkable GDP PC in the subtropical zone are United Arab Emirates, Saudi Arabia, Kuwait and Bahrain, four countries from which the economy is strongly dependent on oil resources. Kuwait and Bahrain share the highest and second-highest valued currency units respectively, i.e. Kuwait Dinar and Bahrain Dinar. These currencies are considered as being extremely stable corresponding to the security of its resources.

Next country worth to mention, is Israel. The country sharing a historical relationship with the United States has been home for one of the first overseas research and development facilities of Microsoft and Apple. This strong political bond between these countries made Israel one of the strongest economies in the Middle East.

Isolated on the graph, Australia proves to have a wealthy economy. Whereas the country is split by the tropic of Capricorn, most of its economy and habitable zones is located on the southern part of it: the subtropics. This subtropical-tropical division within a country itself is also visible in Brazil, where the richest part of the nation is located in the subtropics.

This distinction between North and South is also observable within continents. In Latin America, the correlation between latitude and GDP PC is indubitable. Argentina, Uruguay and Chile not only have the most southern coordinates, but also have the highest GDP PC of the region.

Same happens when we isolate the African continent from the data. Even though the entire continent has, historically, been linked with a poorer territory on earth, relatively we notice that the wealthiest countries are located at its latitude-extremes: South Africa and The Maghreb, the two zones located in the subtropical part of Africa.

Arriving at the highest degrees of latitude on the graph (between 45° and 65°), the European countries are shown. Switzerland wins the race with the highest GDP PC (Luxembourg has a higher GDP PC, but is not taken into account in this analysis due to its lower population). Next, a clear separation is noted by the trend line, dividing Western Europe from East European Countries. It seems that when temperate-zone economies are not rich, there is typically a straightforward explanation, such as decades under communism. Continuing the trend, one notes that the Slavic countries are amongst the wealthiest economies of Europe.

As one of the most important laws in statistics claims: correlation does not imply causation! Nevertheless, a country’s economy seems to be affected by its geographical location. Adam Smith (2003) linked the place of occurrence of the industrialization in countries located close to seas and / or rivers, allowing a cheap way of transport of goods. In this article, another geographical variable has been linked to a country’s economic development: its latitude. Even though there is a proven correlation between a country’s latitude and its GDP PC, there is no general accepted explanation for this.

This climatic variable may lose its effect with the technological development, but it may have been critical for the way the geographical economies have grown until now.

In a deeper analysis, it would be convenient to analyze a country’s access to the rest of the world. Country’s with no maritime access have less options to establish commercial relationships (maritime transport being the cheapest). As stated above, tropical countries with no access to the sea are amongst the poorest nations in the world. Same logic applies for countries having access to the sea and being located in non-tropical zones, as observed by Mellinger, A. D., Sachs, J., & Gallup, J. (2000), confirming that global production is highly concentrated in the coastal regions of temperate climate zones. Regions in the "temperate-near" category constitute a mere 8.4 percent of the world's inhabited land area, but they hold 22.8 percent of the world's population and produce 52.9 percent of the world's GDP.

Even historically we can place the greatest civilizations around the subtropics: Ancient Rome, China, Greece, Egypt, India, Mesopotamia and Persia. The French philosopher Montesquieu already linked the wealth of a country to its climate, promoting an interactive relationship between climate and institutions (Piergallini, 2016).

A point to be considered as well, is the natural need for goods of a certain country. In this way it is no coincidence that the Industrial Revolution has happened in the UK (Allen, 2009). A revolution that has started in the textile industry. Having to suffer a constant pressure of delivering clothes to its population in winter times may have been one of the reasons to be constantly looking for more efficient ways to produce on a larger scale. In general, the non-tropical zones have a well-defined demand for energy and have years of experience in managing the efficiency of energy-usage.

Another explanation that definitely needs to be considered, is the survival of deadlier diseases in the tropical zones and the difficulty of agriculture (Brodsky, 2015). Nations in tropical climate zones face higher rates of infectious disease and lower agricultural productivity than other nations.

Or maybe today’s economic climate is a historical accident, simply a legacy of colonialism?

It is difficult to link the entire world’s economic map to one variable: the latitude. A more profound analysis would include its economic philosophy, social history, political mentality and geographical location (which not only depends on latitude). But would it be that a causation-relation exists between a country’s economy and its climate? And, if so, does it mean that the global warming will increase the gap between the poorer and wealthier countries? Or does today’s technologic development make this variable less impacting?

Elias Aragones-Melhem

Manager at AION Consulting


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